Chap006 - Chapter 06 - Process Costing CHAPTER 6: PROCESS...

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Chapter 06 - Process Costing CHAPTER 6: PROCESS COSTING QUESTIONS 6-1 A company that should use a process costing system typically has homogenous products, which pass through a series of similar processes or departments. These firms usually engage in continuous mass production of a few products. 6-2 Process costing is likely used in industries such as chemicals, oil refining, textiles, paints, flour, canneries, rubber, steel, glass, food processing, mining, automobile production lines, electronics, plastics, drugs, paper, lumber, leather goods, metal products, sporting goods, cement, and watches. 6-3 Differences between job and process costing: (1) accumulating costs by job versus department, (2) collecting cost data using the job cost sheet vs. the production cost report, and (3) computing unit cost by job vs. department. 6-4 Equivalent units are the number of completed units that could have been produced given the amount of work actually performed on both complete and partially completed units. 6-5 If direct materials are added at the beginning of the process rather than uniformly throughout the process, we do not need to add any equivalent units of direct materials to finish the work-in-process beginning inventory . 6-6 A production cost report is a report, which summarizes the physical units and equivalent units of a department, the costs incurred during the period, and costs assigned to both finished goods and work-in-process inventories. The five key steps in preparing a production cost report are analysis of physical units, calculation of equivalent units, determination of total costs to account for, computation of unit costs, and assignment of total costs. 6-7 The weighted-average method equivalent units include both the units placed into production in the current period and the units from the prior period that are still in production at the beginning of this period. FIFO method does not include the equivalent units of the prior period that are still in production at the beginning of this period. Equivalent units under the weighted-average method are larger than those under the FIFO method. They are equal only if there is no beginning work- in-process inventory. 6-8 The weighted-average method would be inappropriate when a firm’s beginning and ending inventories or manufacturing costs per unit change dramatically from period to period . 6-9 The advantage of the weighted-average method is its simplicity . 6-1
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Chapter 06 - Process Costing 6-10 From the standpoint of cost control, the FIFO method is superior to weighted- average because the cost per equivalent unit under FIFO represents the cost for the current period’s efforts only. It is impossible to monitor cost trends using the weighted-average method because the costs of the prior period and the current period are mixed together. 6-11
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Chap006 - Chapter 06 - Process Costing CHAPTER 6: PROCESS...

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